20 Years of Arnoldshain Seminar
“20 Years of Challenges for Integration, Globalization, and Development”
September 14 – 18, 2015
Frankfurt and Arnoldshain / Taunus

Ganame, Maria Cecilia

Abstracttitle

Endogenous protection in imperfect competitive markets: an empirical analysis for countries of Mercosur

Co

co-authored with Germán Calfat, María Florencia Granato

Shortabstract

During the 1990s, countries of Mercosur followed the world trend of increasing trade
integration both within the bloc and with the rest of the world. As it is well documented by
Olarreaga and Soloaga (1998), during the first four years of the agreement, founder
members showed a rate of integration with the world that was 10 times larger than that
evidenced during the 1980s. The trade integration process was the outcome of an important
reduction in trade restrictions. Albeit efforts in terms of liberalising trade policy during the first
years of Mercosur; after more than twenty years of its foundation, countries of the region still
apply relatively high trade barriers. Political economy views of trade policy may help to
understand the level of such trade barriers.
This paper provides an empirical analysis that supports the insights of a framework
presented in Gáname (2013), which is an extension of the political-support approach of
Grossman and Helpman (1994) to the case of monopolistic competitive markets. The sample
considers Argentina, Bolivia, Brazil Colombia, Peru, Uruguay and Venezuela. The
econometric expression of the endogenous protection for productive sectors within
MERCOSUR’s countries takes the form of one for panel analysis.
Insights of the model presented in Gáname (2013) are corroborated by the evidence.
Estimations of the endogenous tariff regression show that the interactive effect of the ratio of
domestic consumption to foreign variety and the inverse of cross price elasticity, impact
positively on the level of protection; hence the degree of substitutability between domestic
and foreign varieties plays an important role. Moreover, the ratio of import quantity to import
price may also affects positively on tariffs. Finally, the approximated value of the general
welfare weight would suggest that governments would attach a different weight to individuals;
those who belong to an interest group would receive a weight that is approximately 25
percent above the weight given to non-organized individuals.